Public Private Partnerships in Telecomunications

InfrastructureMark Williams

Senior Economist Global Information and Communications Technologies Group

World Bank

Why?Where?

How?

Why?

Investment into privately-owned operators has driven network expansion

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

East Asia and Pacific Europe and Central Asia Latin America and the CaribbeanMiddle East and North Africa South Asia Sub-Saharan Africa

US$

bn

*Excludes China

Network coverage has expanded dramatically

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

90%

99%

21%

91%

56%

86%

8%

67%

LIC LMC UMC HIC

% p

opul

atio

n co

vera

ge

What’s the problem ?

Evolving policy objectives◦ Voice coverage is growing and access is increasing◦ 10 years ago, broadband was seen as a luxury –

increasingly seen as a necessitySearch for ubiquitous basic network coverage

◦ Even in optimum market and regulatory conditions, 10% of Africa’s population will remain beyond networks (AICD).

◦ Same likely in other regions◦ Greater gap for broadband – upgrading rural exchanges

for broadband, upgrading backhaulLimitations on broadband speeds – mainly in

access networks◦ 2-50Mbs using xDSL/Cable modem◦ Fiber to the customer premises

PPPs – one policy among many

Public demand aggregationTraining, education and computer literacy

More competition, better regulationAccess regime for incumbent networks

Rights-of-wayPublic infrastructure (electricity, pipelines)

Common passive infrastructurePublic co-investment (PPPs)

Broadband network

investment

Supply-side

Demand-side

Where?

Range of approaches

Urban vs Rural◦Sweden, France, USA, Australia – rural

connectivity◦Singapore - urban

Backbone vs Access vs bundled◦Backbone – Australia◦Access – Singapore◦Bundled - USA

How?

Ireland – submarine fiber-optic cable

Problem◦ Pre-1999, Ireland dependent on international fiber-optic cable

that passed via the UK (Cable and Wireless)◦ Paying high prices for international connectivity – stifling local IT

industryStrategy

◦ Attract new cables through financial incentives from government, guarantee access through public intervention as reseller

◦ Industrial Development Authority (IDA) under the Ministry of Public Enterprise entered into $80m agreement with Global Crossing

◦ Global Crossing owns and operates cable◦ IDA acts as anchor client and resells to domestic market at non-

discriminatory terms

Singapore – fiber-to-the-home access network

Problem◦ High levels of broadband but no operator willing to invest

in fiber-to-the-home so top-speeds limited◦ Government willing to invest but wanted to maintain

competitionStrategy

◦ Public financial support for core infrastructure through PPP

◦ Competition runs on top of government-financed infrastructure

◦ Competitive tendering for PPP contracts. Owned and operated by private sector

◦ Split into two layers – passive (ducting and dark-fiber) and active (IP transport)

◦ Operators were required to form separate companies/consortia to bid to ensure non-discrimination

Australia – rural backbone

Problem◦ Fully liberalized market but no competition to Telstra on

small-town/rural routes◦ Limits to regulated access to Telstra’s network

Strategy◦ Create competition to Telstra on 6 priority up-country

routes (6000km, 100 locations) through subsidizing new entrant (up to A$250).

◦ Routes selected by government and then contracts tendered.

◦ Winner required to provide on a non-discriminatory basis – enforced through PPP contract. Operation for 5 years

◦ Operator required to provide range of wholesale services (Managed wavelength, Carrier managed leased line services (SDH), Carrier managed Ethernet, interconnection)

◦ Contract and awarded to Nextgen (mid 2009).

Australia – rural backbone

World Bank experience of PPPs in telecoms infrastructure

EASSy

Problem◦ No submarine fiber along the east coast of Africa◦ Desire to avoid cartel approach of SAT-3

Strategy◦ DFIs finance new cable (EASSy). ◦ Total project cost = $263m. $70million DFI debt financing◦ Privately-owned (some SOEs). No direct government role◦ Regulatory controls built into cable consortium contracts◦ Internal competition between operators on EASSY◦ Target subsidies at smaller operators to give them access

to cable at optimal prices◦ Open-access and internal competition created through

WB role in negotiation of consortium agreement and DFI loan covenants

EASSy

EASSy

Conclusions◦ Successfully closed project and stimulated development

of other cables◦ Role of WB and DFIs crucial in initial design and

agreements◦ Role of DFIs essential in forcing open-access conditions -

opposed by all shareholders◦ Opposition from governments after exclusion from

projects◦ Regulators incapable of successfully regulating

submarine cables◦ Regulation through contract is a feasible alternative◦ Long-run driver of success will be competition within

EASSy and with other cables◦ Private-ownership and strong sponsor essential◦ DFIs cause delays…

RCIP Burundi

Problem◦ All domestic network infrastructure is wireless◦ Limited broadband

Strategy◦ Government co-finances development of national backbone

network through WB project◦ Government finance is through subsidy, no public ownership◦ Operators form company to develop and operate network◦ WB project finances studies and designs◦ Operators invest equity, government injects subsidy/pre-

payment◦ Construction and operation governed by PPP contracts and

license/concession agreement

RCIP Burundi

RCIP Burundi

Conclusions◦National fiber optic network would not be feasible without

government subsidy◦Negotiated (ie non-competitive) process creates problems –

financing, phasing◦Difficulties in getting cooperation between competitors.

However, cooperative solution in which users are owners allows self-regulation

◦Opportunities for corruption in procurement◦WB procurement process creates delays but helps with

transparency and provides neutral, commonly acceptable process for management

◦Requires high-calibre legal and financial advisory support

RCIP Rwanda and Malawi

Problem◦Land-locked countries needing access to coastal

landing stationsStrategy

◦Stimulate investment through aggregating demand (anchor tenant)

◦Competitive tender to supply fiber-based connection to submarine cables

◦Long-term supply contract to government. Operator acts as wholesaler in the market

◦No government ownership in project

Alternative approaches

Nigeria –infrastructure competition between backbone networks

Kenya – mix of public and private

Competitive private-sector

routes

Non profitable routes

Zambia – 2 national fiber backbone networks

Zambia – 2 national fiber backbone networks

Zambia – 2 national fiber backbone networks

Government recently announced it is giving

control of ZESCO’s fiber to Zamtel to create

monopoly in order to raise privatization sale

value of Zamtel

Rwanda – three private backbone networks

MTN – investing in fiber backbone for domestic backhaul and for regional transit

LAPGreen (ex incumbent) has metro fiber and domestic backbone. Linked to business in Uganda

KDN/Altech – regional backbone network connecting Rwanda to Mombasa

Rwanda – government has built fourth national backbone network

Rwanda – government has built fourth national backbone network

c. $100m total costDesigned for government traffic100% government-owned. Plans to introduce private partner for

management/investmentAdditional ducting included for

private operators

What have we learned ?

Design/policy ◦Target the PPP at the problem – rural ? ◦PPPs only work if they are part of the correct

policy environment◦Government appetite for PPPs is very important –

can’t force a PPP on a government if they don’t want to do it.

◦Private-sector is very suspicious of governments ◦Strong political-economy forces: “national

assets”, protecting SOEs, trophy projects, off-budget financing

◦Public investment may be storing up problems for the future – Zambia, Tanzania, Republic of Congo, Kenya ?

What have we learned ?

PPP structure◦Strong private financial and operational interest

in the project is essential. Need private sector to validate technical design.

◦Ability of governments to regulate is very low so any solution that depends on regulator is likely to fail. Better to have structural solution (e.g. competition on EASSy).

◦Competitive tendering process have advantages over negotiated arrangements but operation will be more dependent on regulatory supervision.

◦Government equity investment (e.g. Kenya TEAMS)?

What have we learned ?

Implementation◦Involvement of WB/DFI systems provides

reassurance to private operators. ◦WB procurement systems are not ideally suited

for PPPs.◦Need high-level advisory services for design,

running tenders and negotiating contracts.◦Governments and WB are slow. The market

moves very quickly. ◦Corruption is a problem.